Report: Afghan banking authority rejects U.S. help

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Since a multi-million-dollar corruption scandal nearly toppled Afghanistan’s largest bank in 2010, Afghanistan’s banking regulatory agency has stonewalled American attempts at oversight or intervention, raising fears that a graft-ridden financial sector could hobble the country’s development.

The Special Inspector General for Afghanistan Reconstruction, the U.S. government’s watchdog for Afghanistan projects, sounded a note of alarm in a report issued Wednesday about Da Afghanistan Bank, the Afghan government’s financial sector regulatory agency.

Confidence in DAB’s Financial Supervision Department was shaken after widespread fraud led to a run on Kabul Bank, the report says, requiring an $800 million bailout from the Afghan government.

Note from the report

The disaster became emblematic of Afghan corruption, especially after it came to light that President Hamid Karzai and his top aides were dictating to prosecutors who should and should not be charged for their part in the fraud, according to a 2012 report from an Afghan committee set up to investigate the scandal and its aftermath. Karzai’s brother, Mahmood Karzai, was named by The Washington Post as one of the power players who allegedly got payoffs from the bank in the form of loans they were never asked to repay. However, he was never charged with any crime.

After Kabul Bank’s collapse, audits of Afghan banks found that few of them had established policies and procedures, there was a general lack of accounting expertise and many weren’t following international accounting standards.

But instead of encouraging the American military and State Department to help fix the banking sector, Hamid Karzai “decided that U.S. government advisors were no longer welcome at DAB,” the SIGAR report says.

Treasury officials told SIGAR that Afghans at DAB said U.S. advisers caused the Kabul Bank crisis. According to SIGAR, unnamed Treasury Department officials said there was “a lack of political will on the part of the Afghan government that would reassure U.S. agencies that their technical assistance is appropriately used.”

The Treasury Department cut off aid for DAB in March 2011. USAID followed suit in June.

When the DAB governor asked whether the Treasury Department might resume aid later that year, treasury officials gave DAB an ultimatum that, among other things, demanded the Afghan government stop blaming the U.S. for Kabul Bank’s collapse. The DAB governor didn’t pursue the matter further.

SIGAR says it has no recommendations for the American government, since it currently has no control or influence over DAB. “However,” the report adds, “we will continue to carefully monitor this situation.”